Bill Would Extend Ponzi Scheme Tax Breaks

Mar 26 2010 | 4:01am ET

Ponzi scheme victims would have recourse to millions in new tax breaks under a bipartisan proposal introduced yesterday in the U.S. Senate.

The measure, sponsored by Sens. Charles Schumer (D-N.Y.) and Jon Kyl (R-Ariz.), would extend the tax breaks to indirect investors in Ponzi schemes. Currently, indirect investors are eligible for neither existing tax breaks nor to file claims with the Securities Investors Protection Corp.  That would be a boon to thousands of investors who lost money in Ponzi schemes through their investments in pension funds, funds of hedge funds or feeder funds—such as many victims of the Bernard Madoff scandal.

The bill would also extend tax breaks—previously available only to victims who lost money only in taxable accounts—to users of pre-tax individual retirement accounts.

The relief would be available to victims of Ponzi schemes uncovered in 2008 and 2009, but might not cover frauds uncovered this year.

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